In The Media

Republican congressional leaders on Tuesday stepped up efforts to convince President Trump to abandon plans for global tariffs on steel and aluminum imports, warning the protectionist move would damage the economy and muddle the party’s message in the run-up to November’s midterm elections.

“I think the smarter way to go is to make it more surgical and more targeted,” House Speaker Paul D. Ryan (R-Wis.) said Tuesday at a Capitol Hill news conference.

The administration’s proposed approach “is a little too broad” and had potential to start a global trade war, Ryan said.

“There is clearly abuse occurring ... by some countries, particularly China,” Ryan said. “And so what we’re encouraging the administration to do is to focus on what is clearly a legitimate problem and to be more surgical in its approach.”

“There is a lot of concern among republican senators that this could metastasize into a larger trade war,” he said in the Capitol. “We are urging caution.”

Trump continued to brush aside such concerns on Tuesday.

“We’ve been mistreated as a country for many years and its just not going to happen any more,” Trump said at a joint appearance with Swedish Prime Minister Stefan Löfven. “When we’re behind on every single country, trade wars aren’t so bad.”

“We’re going to straighten it out,” Trump said. “And we’ll do it in a very loving way. They’ll like us better, and they’ll respect us more.”

The statements continue a public split over trade between Trump and leading members of his party, who on Monday waged a public debate over core GOP economic principles.

“We are extremely worried about the consequences of a trade war and are urging the White House to not advance with this plan,” said AshLee Strong, a Ryan spokeswoman.

Members of the House Ways and Means Committee Monday circulated a letter urging the president to narrow the tariffs’ focus, while high-ranking Senate Republicans voiced their own opposition. Sen. Orrin G. Hatch (R-Utah), chairman of the Senate Finance Committee, predicted that the president ultimately will scrap the trade levies.

“I think it would be a tragedy if they continue on the course that was announced,” said Hatch, who blamed White House trade adviser Peter Navarro for steering the president toward protectionist policies.

The Republican lawmakers went public after several days of Trump airing his protectionist views. In an early morning tweetstorm and subsequent Oval Office remarks Monday, the president doubled down on his trade offensive, telling reporters: “No, we’re not backing down.”

At the White House, senior aides like Gary Cohn, director of the National Economic Council, sought to convince the president to reconsider even as colleagues labored over the legal work needed to implement the import taxes, senior administration officials said.

Trump vented his conviction that the United States has been “ripped off by virtually every country in the world” on trade while mainstream Republicans insisted that his tariffs would backfire on American businesses and consumers.

“My constituents are worried about the cost of their beer cans,” Sen. John Cornyn (R-Tex.) said. “The price of cars. A tariff obviously is going to get passed on to the consumer eventually in the price of goods, and that ought to be everybody’s concern.”

White House tariff opponents have warned the president that the import levies will undermine the buoyant stock market and sap the strengthening economy, which Trump routinely celebrates.

Economists at High Frequency Economics said Monday that Trump’s “trade warmongering” is now the biggest danger for an economy they expect will expand by 3 percent this year.

“We don’t think this is a smart economic policy decision, and [it] could harm the economic progress that a lot of his policies have helped bring about,” said Sen. John Thune of South Dakota, the No. 3 Senate Republican.

Senior Republicans hope to convince the president to abandon his new import tax of 25 percent on steel and 10 percent of aluminum or at least exclude allies such as Canada.

But Trump threatened Monday to include both Canada and Mexico in the tariffs unless they make concessions to the United States in talks over revising the North American Free Trade Agreement.

“Canada must . . . treat our farmers much better. Highly restrictive. Mexico must do much more on stopping drugs from pouring into the U.S. They have not done what needs to be done. Millions of people addicted and dying,” he tweeted.

Hours earlier, he defended his moves to protect the domestic steel and aluminum industries, declaring them “dead” otherwise. Yet U.S. production of raw steel in the fourth quarter of 2017 was more than 50 percent above levels at the depths of the 2009 recession and higher than the 25-year average, according to Federal Reserve data.

Trump’s comments also are likely to help countries that challenge the U.S. actions at the World Trade Organization, according to Edward Alden, a trade policy expert at the Council on Foreign Relations. By stating that he would exempt Mexico and Canada from the tariffs if they make concessions on NAFTA, the president suggested that measures billed as critical for U.S. national security actually were economic bargaining chips.

“This cuts the legs out from under the administration’s claim this was being done for national security,” Alden said. “This is as clear a signal as you can get that the national security premise here is a phony one.”

Trump reiterated his long-standing complaints about the 1994 NAFTA pact, labeling it a “disaster” even as negotiators in Mexico City were wrapping up their latest round of talks aimed at overhauling it. The president says that Mexico and Canada have taken advantage of the United States and wants any new agreement to erase the U.S. trade deficit with Mexico and return lost manufacturing jobs to the United States.

Negotiators in Mexico City reported limited progress. Only six of 30 chapters have been agreed upon, according to Robert E. Lighthizer, the U.S. trade representative.

“We have not made the progress that many had hoped in this round,” Lighthizer said.

He later told reporters that the three nations “have a month or a month and a half or something to get agreement in principle.”

Negotiations are complicated by a crowded political calendar in all three countries, notably including the Mexican presidential election in July.

Trump’s saber-rattling will make it harder for the countries to reach agreement, according to Jorge Guajardo, a former Mexican diplomat now at McLarty Associates.

“Any trade deal has to be negotiated quietly, away from the spotlight,” he said. “Anytime you make it public, you make it political. . . . It does make things very, very difficult.”

The president’s unconventional negotiating approach also alarms many Republicans, who fear it will disrupt $1.1 trillion worth of U.S. trade with its northern and southern neighbors.

Trump last week disclosed plans to impose the tariffs, following a Commerce Department finding that rising volumes of inexpensive metal imports threatened national security.

The chief problem for domestic steel and aluminum makers is excess production by China, which depresses global prices, most analysts agree.

Lighthizer said he spoke to Trump about the tariffs a couple of days ago and the president described a potential exemption for Mexico and Canada as an inducement to reaching a deal.

“His view is that this will help the process,” Lighthizer said. “It was the president’s idea, it was not my idea.”

Eric Miller, president of Rideau Potomac Strategy Group, said that the president was mistaken in trying to address the effects of excessive Chinese metals production via the NAFTA talks. Instead, the United States should pursue remedies through the 33-nation global steel forum at the Organization for Economic Cooperation and Development. Talks there are scheduled to resume Wednesday in Paris.

“The forum with the best chance at a coordinated response to the problem has been largely ignored by the U.S.,” Miller said.

Trump’s proposed tariffs will hit U.S. allies much harder than China, according to Chad Bown, a trade analyst with the Peterson Institute for International Economics. Canada will lose an estimated $3.2 billion; the European Union, $2.6 billion; South Korea, $1.1 billion; and Mexico, $1 billion, he said, while China would lose $689 million.

White House officials have not decided precisely how the tariffs will be applied, two people briefed on the discussions said. There is still a debate over whether Canada, Mexico, and Britain should be exempt from the measures, with some aides arguing that these longtime U.S. allies do not pose a national security risk.

“They’re going to have to find a way, or an avenue, to exclude allies in some way or another,” said one Mexican official familiar with the internal administration debate.

The tariffs would take effect at a critical moment for economic policymakers. After nearly a decade of historically low interest rates, the Federal Reserve is gradually tightening monetary policy to head off inflation. The tariffs will nudge prices higher, and the trend could accelerate if a cycle of tit-for-tat retaliation takes effect between the United States and its trading partners.

If the Fed raises interest rates too quickly, it could steer the economy into its first episode of stagflation — sluggish growth coupled with fast-rising prices — since the late 1970s. “A round of protectionist measures can easily turn into a stagflation due to missteps by policymakers,” High Frequency Economics economists warned in a research note.

All major world economies are expanding simultaneously for the first time since the end of the Great Recession.

In Geneva, Roberto Azevêdo, the Brazilian diplomat who heads the World Trade Organization, echoed fears of a protectionist America imperiling the global recovery.

“We now see a much higher and real risk of triggering an escalation of trade barriers across the globe. We cannot ignore this risk, and I urge all parties to consider and reflect on this situation very carefully,’ Azevêdo said. “Once we start down this path, it will be very difficult to reverse direction. An eye for an eye will leave us all blind and the world in deep recession.”

On today's Global Exchange Podcast, CGAI Vice President Colin Robertson sits down with CGAI Fellow Sarah Goldfeder and CGAI Advisory Council Member Laura Dawson to discuss last week's midterm election in the United States. Join Colin, Laura, and Sarah as they debate the implications of the 2018 U.S. midterm on the agenda of Donald Trump, the effect a Democratic House of Representatives will have on Canada, as well as what the election means for bilateral relations moving forward.